SCO, BayStar Fight Appears Over

A SCO spokesman says the company has completed its arranged settlement with its former financial backer without fanfare.

The fight between The SCO Group and BayStar Capital, which concerned the contentious end of the financing deal between them that fueled SCOs Linux litigation, may finally have come to an abrupt and quiet end Wednesday.

According to Blake Stowell, communications director at Lindon, Utah-based The SCO Group Inc., "BayStar requested the $13 million and the 2,105,263 shares of SCO common stock certificates SCO owed BayStar for its $40 million worth of Series A-1 shares within the last 48 hours, and SCO has sent it, which confirms the deal we had announced on July 23."

With this deal, according to SCO, all of BayStar Capital II LPs 40,000 shares of Series A-1 Convertible Preferred Stock have been canceled and are no longer issued and outstanding.

The dispute arose when BayStar refused SCOs offer to close their arranged settlement July 23. At the time, BayStar spokesman Justin Meise said the settlement had not closed due to an "unresolved dispute between the parties," despite SCOs announcement that the deal had been closed.

Meise also said at the time that the Larkspur, Calif.-based private equity firm "intends to file an action requesting a declaratory judgment with respect to its rights under the Stock Repurchase Agreement. Until a final determination is made by the court, BayStar maintains its position as a Series A-1 Preferred stockholder of SCO."

In short, BayStar felt that SCO had not lived up to its end of the bargain and BayStar would therefore sue SCO.

SCO had obtained $50 million in financing from BayStar and its partners to pursue its Linux lawsuits. But the two quickly fell apart over SCOs plans.

BayStar wanted the Unix company to focus on its IBM litigation and discontinue its Unix operating system and software development. SCO executives insisted, however, that the company continue to operate as a Unix vendor.

SCO has sued IBM for more than $5 billion related to Linux, and is also involved in lawsuits against Novell Inc., Red Hat Inc., DaimlerChrysler Corp. and AutoZone Inc.

At SCO Forum in August, SCO CEO Darl McBride said, "If you took the litigation off the table, there is not a lot of basis to invest in the company."

But he also said, "We just want our [Unix] business back, which was snatched from us illegally [by IBMs support of Linux]. We have put those claims in front of the courts; well get in front of them and win, and well be back in the game."

SCO thus sees itself as both an operating system company with a strong reseller base and a litigation company. BayStar, which invested in SCO in the first place because of Microsofts "matchmaking," wanted SCO to focus exclusively on its Unix and IBM IP litigation.

In June, it had seemed that BayStar and SCO had come to terms in an amiable divorce. But when the time came to close the deal, BayStar got cold feet.

Then, according to Stowell, BayStar believed that SCO had misled it on how much money could be made from SCOs IP (intellectual property) licensing division, SCOsource. Stowell noted at the time that SCO stood behind "the accuracy of its public disclosures concerning its SCOsource business."

Since their spat over whether the deal had closed or not, both companies have been silent about the matter until Wednesdays announcement. According to Stowell, "No talks were held between the two companies. It was business as usual. From SCO and the SECs viewpoint, the deal was a done deal. All that happened was that the transfer of cash and stock that could have been done on July 23 was done on Aug. 24."

BayStar representatives had not responded to requests for comment by press time.

SCO on Aug. 31 will release its third-quarter results for the quarter ended July 31. The company has not done well on the market lately. It closed at a 52-week low of $3.60 at the close of trading Wednesday on the Nasdaq Stock Market.


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